Anyone who is thinking of buying a new or used car has a wide range of options to choose from in terms of manufacturer, car type, gasoline, diesel or electric, etc. Regardless of what the individual decides to purchase in the end, it is important up front to understand the various additional costs that can be incurred by choosing the wrong type of financing or failing to appreciate the insurance costs that could be involved.
Most people who buy a new car will need some type of financing to finance it. There are some people who will literally be cash buyers, but they are few and far between. Most people will seek some type of financial or credit arrangement, either with the manufacturer or with other lending institutions, such as a bank or credit union.
If you want to buy a new car, it is also worth considering the option of leasing a vehicle rather than buying it outright. Leasing a vehicle is similar in many ways to a long-term rental, but with some advantages and disadvantages. The advantages tend to be that someone can get hold of a new car that the kids couldn’t afford. Disadvantages often tend to center around end-of-lease agreements, where significant additional costs can be involved to cover additional mileage, additional wear and tear, and any damage or deterioration to the vehicle’s condition.
When a person is looking to finance a new or used vehicle, the manufacturer or its dealer will require a credit application to be completed. The manufacturer will then use a credit rating agency to obtain a credit rating for the individual. This credit score will then be used as a guide by the manufacturer or dealer to assess the creditworthiness of the individual. Based on this evaluation, the dealer or manufacturer will decide whether to offer a loan to the person and, if so, how much, how much of the down payment, what interest rate to charge, and for what period of time. This process is practically the same whether the individual is looking to buy or lease a vehicle.
When someone is looking to finance a new car, it is always a good idea to get as many different quotes as possible from different lenders and compare them on comparable terms. Some people are looking to refinance their loans later in the loan period, but this can be a complicated process that often only costs a lot more money.
Insurance-related costs must also be taken into account. People should know what the legal requirements are for living in terms of liability insurance, but they may not know that the manufacturer will want them to also purchase collision and comprehensive insurance.
Another insurance cost to consider is that of GAP insurance. GAP insurance effectively covers the difference in depreciation between the value of the vehicle when it is purchased, that is, the full amount of the loan, and its subsequent value at any time during the loan period. If the car is written off or badly damaged in an accident, the insurance company will pay less than the purchase price of the vehicle, due to depreciation. GAP insurance is designed to cover this difference.